13 May 2011

College Graduates Usually Live With Parents After Graduating

When I graduated from college, I went straight to law school, and from law school, straight to a home that my wife and I shared with no one else but our cat. I've never moved back in with my parents and neither did my brother after he graduated from college, nor did either of our spouses. But, this pattern is increasingly rare.

A new survey discussed by Time Magazine finds that 85% of college graduates move back in with their parents after graduating from college. The iconic modern American twentysomething is comic strip character Dustin, who spends days looking for jobs and nights at home with his parents, and his undead television comedy counterpart "George" (played by Ellen Muth) in the series "Dead Like Me," both of which presciently debuted before the current economy made their protagonists' experiences so routine. What is driving the trend?

Times are undeniably tough. Reports have placed the unemployment rate for the under-25 group as high as 54%. Many of these unemployed graduates are choosing to go into higher education in an attempt to wait out the job market, while others are going anywhere — and doing anything — for work. Meanwhile, moving back home helps with expenses and paying off student loans.

Failure to launch, is no longer the exception. It is the norm in the current economy. This also helps to explain why more and more young twenty-somethings are deferring getting married and having kids. Household formation rates are at record lows. We are experience the baby boom in reverse.

The particularly troubling part is that missteps at the beginning of a career often have a disproportionate impact on a person's entire work life. If this is really just a temporary bump in the road, it isn't that big a deal in the greater scheme of things, but this may be a far more serious case of a nascent lost generation. When the economy picks up again, that big businesses and professional firms that would have hired people from the last few crops of college graduates to entry level jobs that put those hires on a path to high end careers are likely to hire almost entirely from the most recent crop of new graduates, rather than trying to locate promising talent that was missed in the prior years when hiring was stopped or slowed. Even for those new graduates who wash out of their plum first jobs a few years later as firms winow out all but the most talented prospects whom they promote, not starting off at a plum job may make the difference between being able to pay off students loans in five years and being able to pay off student loans in twenty years.

For bright new college graduates, their prospects are not totally crushed. The current bought of unemployment is probably cyclic. When the economy comes back, there will be jobs and it is always better to be in the job market with a college degree than to be without one. But, jobless new graduates are left in a particularly frustrating position. While commentators like David Brooks wants to call them lazy, what can they do?

It’s difficult to argue that they need to go to college, because they did. It’s difficult to argue that they can’t move to new jobs (unlikely to be homeowners) or suffer high health care costs (doesn’t health care reform allow employers to push their health costs onto their parents’ employer?). Unless we think that the graduating class of 2008 is fundamentally worse than the graduate class of 2006 I don’t see a technology problem.

Also for fun, the graduating classes post-Recession have increasingly large student debt loans, which should lower the reservation wage they’ll accept due to liquidity pressures. So the idea that everyone 20-24 is on vacation is harder to accept compared to earlier years.

New college graduates emerging out into the world this year are no more, and no less than unlucky. They should have been born a few years earlier or later than the year that I graduated from high school, but they weren't.

We can hope, at least, that this will be merely a temporary circumstance. But, it isn't impossible that this trend will endure. For example, one of the major forces driving Islamic terrorism in the world is the existence of an immense class of unemployed college graduates across the oil rich states of the Middle East and North Africa. Indeed, the suicide of a once too often discouraged college graduate in Tunisia was the spark the set off the wave of revolutions that have dislodged or tried to remove authoritarian regimes across tthe regime. Similarly, this phenomena has been the norm in Japan ever since it experienced its housing bubble collapse triggered lost decade, long before the financial crisis, and it has defined a whole generation since then. There is not obvious end to that trend on the horizon in Japan.